According to a UBS research report, Bank of Communications (03328) saw strong growth in pre-provision operating profit that supported its third-quarter earnings, with performance close to the front-runners among peers. The "Buy" rating and target price of HK$10.25 are maintained.
Bank of Communications' third-quarter net profit growth accelerated to 10.1% year-on-year, higher than the 8.6% average of the six largest banks. The results were supported by relatively strong core revenue and strict cost control.
The report noted that third-quarter net interest income rose 10.8% year-on-year, one percentage point faster than the peer average; net fee income fell 6% year-on-year, a smaller decline than the peer average of 7.5%; and other non-interest income rose 18.1% year-on-year, mainly driven by a 60.1% increase in net trading gains, including gains related to ChangXin Memory Technologies.
Operating expenses fell 3.7% year-on-year, while impairment provisions rose 22.7% year-on-year, partly offsetting the strong growth in pre-provision profit.
UBS estimates credit costs rose 8 basis points year-on-year to 55 basis points, the highest among the six largest banks, and remain the main constraint on future earnings growth.
The bank estimates third-quarter net interest margin improved 1 basis point quarter-on-quarter and 7 basis points year-on-year to 1.25%. The reported net interest margin for the first nine months was 1.24%, up 4 basis points year-on-year, but still the lowest among the six largest banks.
The non-performing loan ratio fell 1 basis point quarter-on-quarter to 1.29%; the provision coverage ratio dropped from 210% in the third quarter of 2025 to 200.1% in the third quarter of 2026; and the core tier-one capital adequacy ratio rose 10 basis points quarter-on-quarter to 11.35%, still below the peer average of 12%.
UBS expects the market to react slightly positively to the results.
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